help with accounting

  You are the financial officer for Music Plus, a retailer that sells goods for home entertainment needs. The business owner, Jamie Madsen, recently reviewed the annual financial statements you prepared and sent you an e-mail stating that he thinks you overstated net income. He explains that although he has invested a great deal in security, he is sure shoplifting and other forms of inventory shrinkage have occurred, but he does not see any deduction for shrinkage on the income statement. The store uses a perpetual inventory system. Prepare a brief memorandum that responds to the owner’s concerns.

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sela
07 October 2012
The key issue here is whether the value of stock included on the business Balance Sheet is accurate. If it is too high, then the business owner may well have a point. You would normally perform a stock check to see if the quantity of stock held was correct, as part of the year end accounts.
jonfromtutorhub
07 October 2012
The value of the stock should be looked at too. If it is valued too highly, maybe because you bought something a long time ago, then the value may need to be reduced. Remember, if the value of the asset reduces, the double entry is to the Profit & Loss account, so it will reduce profit / net income.
jonfromtutorhub
07 October 2012
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